Lifting the Automatic Stay in Chapter 7 Cases

One of the most attractive consequences of filing a bankruptcy petition is the automatic stay. In a previous article, I discussed the importance of the automatic stay in bankruptcy. As I wrote in that previous article:

The Automatic Stay is a type of injunction which prevents all of a debtor's creditors from making any attempts to collect on any debts that were owed prior to the filing of the bankruptcy case. What that means is that if you are being sued for a debt that you owe, that lawsuit is put on hold and cannot proceed absent an order from the Bankruptcy Court. In addition, without a Bankruptcy Court order, a foreclosure sale cannot proceed, your wages cannot be garnished, and your debt collectors must refrain from calling you and asking you to make good on your debts.

This article, however, will briefly go over one of the most common motions filed in chapter 7 bankruptcy cases – motions for relief from the automatic stay.

What is the Relief from Automatic Stay?

This motion is filed by a creditor that is asking that the automatic stay not be applied to it any further. The most common motions for relief from the stay in consumer cases are filed by home mortgage lenders.

There are a few scenarios where a secured creditor will most likely move the Bankruptcy Court for relief from stay in chapter 7 proceedings:

  1. The property securing the debt is of significant value and is uninsured or otherwise subject to unacceptable risk;
  2. The property securing the debt is of significant value, is depreciating rapidly, and the creditor has reason to believe that the debtor will not promptly surrender the property, reaffirm the debt, or redeem the property; or
  3. The debtor has defaulted on the payments owed on the property, such as defaulting on mortgage payments.

As a result, if you have defaulted on your home mortgage and have stopped making payments, it’s likely that the stay will be lifted upon motion by the secured lender in your chapter 7 case.

What Happens if the Motion is Granted?

If the Bankruptcy Court grants a creditor's motions for relief, the debtor will not automatically lose his or her property. Once relief is granted, the creditor may proceed through its other judicial remedies to seize or foreclose on the property. Thus, if a foreclosure sale on a home is scheduled when a debtor files bankruptcy, if the stay is later lifted, the foreclosure sale may be rescheduled and occur even while the debtor is still in bankruptcy.

Every bankruptcy case is different. As a result, relief from stay affects each debtor differently. It is important to consult with one’s bankruptcy attorney prior to filing in order to anticipate whether a motion for relief from stay is likely to be brought.

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